Bank of Thailand Surprises Markets With Rate Cut as Uncertainties Loom

The Bank of Thailand (BOT) caught investors off guard on Wednesday, February 26, 2025, by cutting its benchmark interest rate by 25 basis points to 2.00%. The move, which followed a rate hold in December and a surprise quarter-point cut in October, was a response to a weaker growth outlook and increased risks posed by global trade policy uncertainty. The central bank's monetary policy committee voted 6-1 in favor of the rate cut, with one member dissenting.

The rate cut comes as Thailand's economic outlook has darkened in recent months, with GDP growth forecasts revised downwards and geopolitical headwinds looming. The BOT's decision was a surprise to many, as only four out of 28 economists polled by Reuters had predicted a quarter-point cut this week, while 24 expected no policy change.

The BOT's move follows repeated government calls for further easing to support the economy and weaken the baht to boost exports, a key growth engine. The central bank said the rate cut was based on the economic outlook and took into account slower gross domestic product growth and trade policy uncertainty among major economies.

"Regarding inputs from the political side and businesses, it's normal to exchange views and use this for evaluation. But I must say this time we based (the rate cut) on our assessment of the overall economic picture," assistant governor Sakkapop Panyanukul told a press conference, responding to reporter questions on political pressure.

Economic growth could be slightly above 2.5% this year, down from 2.9% seen in December, he said. Sakkapop said the central bank was ready to adjust policy if the outlook changed, adding the cut was not part of an easing cycle and the bar would be high for further reductions.

"The Thai economy is projected to expand slower than anticipated, owing to structural impediments in manufacturing production as well as competition from imported goods, despite support from domestic demand and tourism," the central bank said in a statement.

The vote to cut was to align with "financial conditions with the economic and inflation outlook as well as financial stability, and to better cope with increasing downside risks."

Thailand's benchmark stock index rose rose as much as 2% after the decision, while the baht edged up 0.2%. The rate cut is expected to have an impact on the Thai baht and its exchange rate with other major currencies, potentially weakening the baht and making Thai exports more competitive internationally.

The BOT's rate cut comes as the US-China trade war and potential retaliatory tariffs from the US on Thailand's exports pose additional risks to the economy. The central bank will closely monitor inflation dynamics to assess the impact of the rate cut and adjust its policy accordingly if necessary.



In conclusion, the Bank of Thailand's surprise rate cut was a response to a weaker economic outlook and increased risks posed by global trade policy uncertainty. The move caught investors off guard and has implications for the Thai baht and its exchange rate with other major currencies. The central bank will closely monitor inflation dynamics and adjust its policy as needed to support economic growth and maintain financial stability.